The reason the Bank of England is investigating the digital pound
The UK. has intensified its commitment to developing into a “global hub” for cryptocurrencies in an effort to lure businesses dissatisfied with unclear regulations in other places. These designs are being worked on quickly, and they may be completed this summer.
The country is also taking its time deciding whether to introduce a central bank digital currency (CBDC), which has been colloquially dubbed “Britcoin” (a play on words we’re sure you’ll appreciate), despite the fact that it would be very different from the unstable cryptocurrencies that currently rule the market.
As more Britons become cashless, the Bank of England has acknowledged that a digital pound is “likely to be needed,” but it hasn’t made up its mind whether to create one yet. The benefits and drawbacks of a CBDC have been discussed, and economists are now developing a prototype.
Considering that a general election must be held by January 2025 and that the Conservatives are virtually certainly going to lose, it’s important to observe what Labour, the winning party, thinks of Bitcoin. In a new paper that outlined its financial guidelines
“Labour fully supports the Bank of England’s work in this area, and wants to ensure that issues such as threats to privacy, financial inclusion and stability are effectively mitigated.”
Labour Party.
For one, some MPs and industry experts have raised fears that a digital pound could be used to monitor how consumers spend their money or even restrict the purchase of everything from flights to red meat. In written evidence to the House of Commons Treasury Committee, the Electronic Money Association trade group warned:
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Financial inclusion is another concern. More than three million British consumers still rely on cash in their day-to-day lives. Yet, at the same time, ATMs have become harder and harder to find, with some retailers now refusing to accept banknotes altogether.
A digital pound may be of little comfort to older Britons who haven’t embraced technology, with research from Age UK indicating that 2.7 million over-65s do not use the internet. While the Bank of England has stressed that a CBDC wouldn’t replace coins and banknotes and that both would continue to be available, this could hasten the switch to a cashless society.
The Treasury Committee’s report went on to warn that the impact on financial stability is unclear and that bitcoin could “increase the risk of bank failures” by making it easier to move funds out of institutions in distress. Limits on CBDC balances have been presented as a potential workaround here.
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Overall, there doesn’t seem to be all that much enthusiasm for Britcoin—a clear point of difference that makes it superior to the status quo of contactless payments. Even the Treasury Committee’s report openly wondered whether this CBDC was “still a solution in search of a problem.”
Britcoin is unlikely to materialise for years to come—if it ever does at all. Achieving mainstream adoption would involve a huge awareness campaign, eye-watering investment in new infrastructure, and extensive work to assuage the concerns of critics.
And with the U.S. and EU also failing to make cast-iron commitments on whether they’ll roll out digital dollars and euros, we could see privately issued stablecoins fill that void and establish market dominance instead.
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The next steps for a digital pound
We haven’t made a decision on whether we will introduce a digital pound.
Work is ongoing in the design phase to develop further the technology and policy requirements for a digital pound. We will undertake experiments with innovative private sector firms to test how it could work in the real world.
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At the end of this phase, we will make a decision on whether to move into a build phase. Parliament would also have a say before any digital currency is launched, and a further public consultation would be held to make sure you have the opportunity to make your views heard.
